The U.S. Department of the Treasury and the IRS have announced that Direct File, a free tax filing option, will become a permanent feature available to taxpayers. The program will be rolled out gradually to support all common tax situations over the next few years. The pilot program in 2024 was deemed a success, with hundreds of thousands of taxpayers in 12 states filing their federal tax returns for free using Direct File and saving an estimated $5.6 million in filing costs. The program is part of the Inflation Reduction Act passed by Congress and aims to make tax filing easier and more accessible for taxpayers.
The Inflation Reduction Act mandated the IRS to develop a report on the cost of providing a free direct e-file tax return system. The report highlighted the interest of taxpayers in using an IRS-provided tool for tax preparation and filing. Despite opposition from some members of Congress through an appropriations bill, the IRS went ahead with the limited-scope pilot program in 2024 to assess the costs and operational challenges of offering the Direct File option to taxpayers. The program received positive feedback from users, with a high degree of satisfaction and increased trust in the IRS among respondents.
Following a recommendation from IRS Commissioner Danny Werfel, U.S. Secretary of the Treasury Janet L. Yellen agreed to make Direct File a permanent feature, pointing out that it aligns with efforts to lower costs for taxpayers. The announcement was met with enthusiasm from advocacy groups and lawmakers who see the program as a significant win for taxpayers, especially those in low-income communities. Despite the initial funding of $75 million budgeted by the Biden administration for the program, some challenges may arise in securing ongoing financial support for the expansion of Direct File as it includes more complex tax returns.
The Direct File option will coexist with the Free File program, another free tax filing service offered through a public-private partnership between the IRS and tax preparation software providers. The IRS announced an extension of the Free File program through October 2029, ensuring continued access to free online tax preparation services for eligible taxpayers. As Direct File expands, efforts will be made to strengthen free filing options for taxpayers, providing additional choices to make the tax filing system more robust and accessible.
The news of Direct File becoming a permanent and free tax filing option was met with positive responses from advocacy groups, lawmakers, and taxpayers, who see it as a significant step towards simplifying tax filing and reducing costs for individuals. However, the announcement led to a drop in the stock price of Intuit Inc., the owner of TurboTax, as the company faces increased competition and scrutiny over its tax filing services. The program is aimed at making tax filing easier and more efficient for taxpayers, with the ultimate goal of increasing compliance and reducing the burden on taxpayers while ensuring the IRS provides the necessary support to taxpayers across the country.
